Q1 2022 Solo Brands Inc Earnings Call
Based on this call and the earnings release contain forward looking statements regarding our financial outlook business plans and objectives and other future events and developments, including statements about the market potential of our products and anticipated financial performance and our goals and strategies.
These forward looking statements now involve substantial risks and uncertainties some of which may be outside of our control that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include those described in the company's earnings release and other filings with the SEC speak only as of today.
Date.
In addition, our discussion today includes references to certain supplemental non-GAAP financial measures, including net income as adjusted diluted earnings per share as adjusted adjusted EBITDA and adjusted EBITDA margin, which should be considered in addition to and not as a substitute for our GAAP results. We use these non-GAAP measures.
<unk>, our ability to generate earnings provide consistency and comparability with our past performance and facilitate period to period comparison of our core operating results reconciliations of these non-GAAP measures. The most comparable GAAP measures and definitions of the reference non-GAAP measures are included in our earnings release and filings with the SEC.
Which are available on the investors portion of our website at investors got Soma brand's dotcom.
Now I would like to turn the call over to John .
Thank you Bruce and thank you for joining us for our first quarter earnings call I will begin today by reviewing our performance in the first quarter. After I will provide an update on our strategic initiatives and then turn the call over to Sam will discuss our financial performance and outlook for 2022.
Quite a challenging macro environment, we were able to achieve a revenue increase of 19% to $82 2 million over the same period of the prior year, including contributions from acquisitions.
During the quarter, we saw a channel shift weighted toward wholesale.
Among our wholesale customers were strong with growth of 224, 2% to $22 million due to increased store growth and strong sell throughs across retail.
Sales of our digital direct to consumer channel declined three 4% due to difficult year ago comparisons.
Despite this channel shift we were able to achieve gross margins in line with our expectations. We continue to see a tremendous opportunity to leverage the power of our platform and as noted last quarter invest behind our growth. We believe these investments will begin to pay off in the back half of this year and over the long term.
We are pleased that our indicators of brand health remains strong with our net promoter scores in the high seventy's referral rates above 40% and repeat purchase rates above 50%. Additionally of our growing customer base of $3 million. The total number of customers that have purchased from at least two brands.
From 25000 to 42677, an increase of 70% since the end of the year.
We remain focused on what we believe is the greatest opportunity for solar brands, which is the organic one with our core products here in the U S.
There is tremendous room to significantly grow our total customers and increase our current estimated market penetration of less than 2% for solar stone.
<unk> and I will have similar opportunities.
We also remain convicted in our five key strategic priorities, which we believe position us for long term sustainable growth.
First our focus on product innovation across all our brands.
Building and leveraging our data in order to drive conversion and marketing efficiencies.
Third international expansion to help facilitate good moment and lasting memories all over the world.
Fourth we remain committed to meeting our customers, where they want to shop, and we are adapting by strategically growing our retail channel and finally, we continue to actively pursue opportunities to expand our business through acquisitions.
Innovation is a core pillar and we are tirelessly focused on product newness that will expand the reach of each of our brands.
So most of our much anticipated <unk> rolled out in the first quarter and we have sold over 26000 units, which is well ahead of our internal expectations, we listen to our customers and meet their needs with products that enhance their experience and helps to strengthen our relationship with them.
This leads to long term value creation for customers and shareholders.
We're enthusiastic about the strong early response and he'd deflectors are becoming a meaningful add on purchase that will be especially attractive as we move into the key winter selling season.
Our Pi launch was also well received by our customer base and while it is still very early we are encouraged by the momentum we are seeing for this product. We introduced color waves late last year color ways is gaining momentum and we are leaning into this opportunity by expanding into retail where there is growing interest for color ways. This is another great example of our innovation is allow.
Owing us to broaden our assortment as well as our appeal to customers.
While our corporate channel is a relatively small part of our business. It is growing at a very fast clip.
We continue to innovate and expand our personalization abilities, which we believe will be a large market opportunity for us. We currently offer ethane on stainless steel and are introducing personalization on color ways, which we expect will be well received personalization has been mostly limited to high quantity purchases, but we're exploring adding the ability to personalize and.
Dividual purchases by the end of the year and preparation for this we've expanded our collegiate offering over the past year and are now offering collegiate logos 47 schools.
As you can see we are starting to realize the benefits of the investments we have made in product innovation at <unk> and we have a healthy pipeline of new products introduced in the back half of the year.
At <unk>, we see significant road to broaden our assortment.
To that end, we recently introduced a new silhouette fabrication, our performance where T shirt, while it's still early the initial response has been good and we plan to offer more innovation in the back half of 2022 with the introduction of a category expanding product at.
And Oreo kayak that response to our <unk> Lake Kayak, our introductory price point kayak has been very strong we launch the product on Kickstarter and it has raised over $2 million during the duration of the campaign, which was to ask the amount raised from our previous Kickstarter campaign at the inlet in 2020 enthused.
Enthusiasm for this new product demonstrates the growth of the Orange brand in the demand for the unique product offerings that order was known to produce at.
At <unk>, we plan on launching a category a differentiated product in the third quarter more to come on that on our next call.
Next we see a meaningful opportunity to leverage our customer database of 3 million customers to cross market. Our brands as mentioned earlier today, we have 42677 customers who have purchased from at least two of our brands and we are focused on increasing this number while still early we are encouraged by our data investments that are.
<unk> awareness across the platform and driving cross brand purchases as we lean into this incredible opportunity. We believe that the investments we are making to mobilize our data should yield significant returns this year and for the years ahead.
Turning to our channel expansion opportunities, we continue to see strong momentum with our wholesale partners and are leaning into this demand we are expanding our presence with some of our existing retailers such as ace hardware gifts and tractor supply our goal remains to move toward an 80 20 balanced between direct to consumer and wholesale over time.
Our international expansion is off to a strong start we have launched localized sites in Canada and throughout Europe , and we've been pleased with the response and improving marketing efficiencies.
Customers in Canada, and Europe are realizing how basically sit around oscilloscope with friends and family all while avoiding the typical game of musical chairs trying to avoid the smoke that comes with the traditional fire pit, we will continue to invest strategically in our international expansion and we plan to enter the Australian market in the third quarter and are optimistic about the opportunity there or in Ireland.
<unk> will soon follow solo step into these markets.
Finally, we continue to evaluate strategic acquisitions and are enthusiastic about the opportunities. We are seeing our focus here is unchanged. We look to find unique disruptive profitable brands that our founder led to complement our existing portfolio.
Turning to supply chain, we have seen some factory closures in China recently, which has had some adverse impacts on our business primarily in the delivery timeline of our pie each of them.
Fortunately our other products across all brands have been minimally impacted due to the strong inventory position of our existing products with contracted freight rates secured we can now confirm that we are expecting freight rates to be higher than last year, which will put some pressure on gross margin. This year, we have seen some reprieve, though as spot rates have come down.
From 2021 highs, we are and will continue to opportunistically use these rates they are lower than our contract rates.
I would like to provide an update on the current trends in our business. The volatility we experienced in the first quarter has continued into the second we believe it is a combination of lapping strong comparisons from a year ago related to stimulus as well as to consumers continuing to fill the pressures of higher inflation, which is impacting their spending in times like these.
We believe operating innovation becomes increasingly important we are focused on what we can control, which is the lighting our customers living amazing products and building a world class team, we are continuing to listen to our customers and invest in innovation to bring them more products that allow them to share lasting memories and in turn continues to refer us to their friends and neighbors.
Before turning the call over to Sam I would like to thank him for all of his hard work, we announced today that summer web will be taking over as our new CFO . Starting may 16, I will now turn the call over to Sam to discuss our first quarter results in more detail.
Thanks, John and good morning, everyone I'm looking forward to walking you through our 2022 first quarter results and then follow that up with commentary on our outlook for 2022.
For the first quarter, we delivered sales and margins in line with our range of expectations and guidance net sales increased 19% to $82 2 million compared to 69 million on the prior year period growth was driven by an increase in volume specifically an increase in total orders, which increased 34, 6% and average order value increased 13, 3% driven by product mix.
Both of which were due to acquisition activity. One on revenues that we had significantly less deferred revenue in the first quarter of 2022 compared to a year ago.
In the fourth quarter of 2020, we had higher levels of deferred revenue due to the supply chain disruptions, which impacted our ability to ship product for orders placed during the quarter.
Our 2020 and deferred revenue was $20 2 million and we recognize that revenue. Once we are back in stock in the first quarter in 2021 and contrast as of December 31, our deferred revenue balance of $2 5 million, which is in line with our normal trends.
By channel direct to consumer sales decreased three 4% to $60 2 million compared to $62 3 million in the same period in the prior year accounting for the impact of deferred revenue.
Net sales increased 224, 2% to $22 million compared to $6 8 million in the prior year.
We are pleased with our multichannel positioning and our ability to meet customers, where they are including successfully satisfying demand in the wholesale channel.
Moving to gross profit gross profit increased five 1% to $48 9 million. Our gross margin rate was 69, 4% compared to 67, 3% in the prior year adjusted.
Adjusting for the impact of purchase accounting adjustments related to the fair value write up of inventory for transactions adjusted gross profit increased 16, 6% to $55 million.
Adjusted gross margin was 56, 9% compared to 68, 2% in the prior year with the brands to prior year, primarily driven by higher inbound freight and logistics expenses and also by the integration of our acquisitions.
Selling general and administrative expenses for the first quarter increased to $45 6 million.
65, 5% of net sales as compared to $87 million in the same period last year the.
The increase in SG&A was primarily due to higher expenses from our acquisitions, which accounted for $12 4 million increase. Additionally, SG&A increased by $6 7 million into play comps as a result of equity based compensation and increased headcount and an increase of $3 $4 million in advertising and marketing spend.
As a result of these factors first quarter net loss was $3 2 million and net loss per share. It was <unk> first quarter. Adjusted net income was $11 1 million and our adjusted EPS was <unk> 19 cents.
Adjusted EBITDA was $14 million and adjusted EBITDA margin was 17% as a reminder, Q1 is our smallest quarter each year as a result strategic investments that we're making in the platform.
This impact on adjusted EBITDA margins in the quarter.
Now turning to the balance sheet at the end of the period, we had $15 9 million in cash and cash equivalents.
As of March 31, 2022, we had $52 5 million in outstanding borrowings under the revolving credit facility and $98 8 million under the term loan agreement borrowings.
Borrowing capacity on our revolving credit facility with $350 million as of March 31, 2022, leaving $297 5 million of availability.
Inventory at the end of the first quarter was $126 $5 million as we moved into the second quarter of our historically second largest selling season of the year, we proactively decided to increase inventory levels across our brands to come back to supply chain disruptions in China, where congestion and expectations of rising freight cost.
Decision ensures we can meet demand and deliver on our customer service expectations.
I would now like to review our top three strategic investments for 2022.
First we have accelerated our innovation investments to enhance and improve our design and manufacturing capabilities. We have a strong pipeline of innovation planned for the back half of the year and well up for 2023 and 2024.
Second we are making meaningful investments in data infrastructure in terms of both people and systems as you look to consolidate and leverage our platform to extend lifetime value of our existing customers increased marketing efficiencies and respond to increasing data privacy changes.
Third and lastly, we have continued to invest in the infrastructure to expand our international operations in Canada, and Europe , and our planned launch of Australia in the third quarter.
Turning to our forecast we are providing guidance based on the visibility that we have today and our historical seasonal trends.
From a macroeconomic perspective, we have experienced a number of headwinds during 2022, including lapping stimulus checks and child tax credits from Q1 of last year and rising fuel cost inflation and other impacts on discretionary purchases in 2022. These.
These factors have weighed on our first quarter results, while the environment remains volatile given the strength, we are seeing in the international and wholesale combined with the upcoming product innovation and Philips does peak season, yet to come we are reaffirming our full year guidance of $540 million to $570 million in revenue.
And then an adjusted EBITDA range of $121 million to $132 million.
In conclusion, I remain enthusiastic about our future our unique assortment of remarkable brands, our innovation pipeline and our highly disruptive DTC platform. We believe in our long term algorithm of 20% net sales growth mid twenty's percent, adjusted EBITDA margin and 20% to 25% of adjusted net income growth.
Before turning the call back over to the operator I would also like to thank Jon and the entire solar brands team for an incredible run so far what we have accomplished together has been truly unique including the acquisition of three amazing brands.
Successful initial public offering I know the best is yet to come on which the <unk> team continued success on this tremendous story I will now turn the call back over to the operator to take your questions.
As a reminder, if you'd like to ask a question E compressor star one on intensifying keypad. If you would like to withdraw your question you May press the balance.
Please ensure you're on mute likely when asking your question.
First question for today comes from Chris holders from J P Morgan Chris.
Open.
Okay.
Thanks, and good morning, everybody and congratulations Sam.
In summer.
My first question is as you think about.
The volatility that you saw in the first quarter.
What youre seeing so far in the second quarter and.
On top of that it sounds like you are reaffirming basically because the expectation that product innovation and international will ultimately flow through and so we're sort of dragging in.
Some of the potential upside to the model that had existed.
In.
It's allowing you to reaffirm is that the right way to think about it and then given the volatility and so far year to date, how does the shape of the year from a revenue and EBITDA perspective change relative to what.
He thought coming in thank you.
Good good question, Chris and thanks, Thanks for bringing all of those questions to light here. So the first thing that I'll I'll just point out.
Yes to your first question.
We like what we're seeing in international we also like what we have in the back half of the year in terms of new.
New product rollout and innovation.
I'd also just point out that.
Didn't really shine through in the script, but if you think about Q1 in terms of a normalized fashion, so kind of accounting for the deferred revenue.
We had that carried over from Q4 of 2020 to Q1 of 2021.
The growth while it looked like it.
In our earnings is negative.
$3, 5% ish or something like that on a year over year basis for our direct to consumer business.
Without the deferred revenue was closer to 15% growth. So instead of a negative kind of turns to a positive. So it wasn't it wasn't all bad and.
That coupled with the international and the products I would say there is some momentum behind the platform. It's not just related to kind of taking some of this upside and rolling it forward. Its also just in the organic.
Inorganic opportunity and growth that we're seeing across the platform. So I think you're you're in the right direction and I just kind of add that that momentum is a little bit covered up because of the because of the deferred revenue noise that we have in the financials.
Yes, maybe I'll piggyback, Jonathan how are you doing.
Go ahead, Chris go ahead no no no I was you are probably going to answer when I was following up on so go ahead.
I was just going to speak to the seasonality of revenue is that is that where youre going Chris yeah. So.
So this year.
Go ahead.
Okay, that's what I'm, saying like from a seasonal revenue.
Perspective, how you're thinking about it.
100%. So we expect revenue to be in line with our historical trends adjusted for what we're seeing this first half with some softness and then adding that additional weight in the back half like you've mentioned like Johns mentioned due to the ramping of investments, including international wholesale corporate the pull forward and renovation timeline is the ability to leverage data in the back half.
Just from a high level standpoint, historically, we've been a little more than a third of our annual revenue in the first half of the year and a little less a little less than two thirds of our revenue in the back half of the year and so it's just going to be a slight shift in that waiting to more to the back half again very very in line with our historical trends for large back at.
And especially a large Q4 driven by the nature of our brands and products.
Got it and then as a follow up question just as you think about.
The fill in the wholesale channel.
We've seen that.
And many of those stores that you've referenced in the call I mean to this.
To what extent do you think about maybe the risk on the wholesale side that.
It's a late spring some of the spending shifts some of the pressures on the consumer that that channel is sort of backs up so I guess.
Maybe the right question is how are you thinking about the growth in the wholesale business.
In.
And the balance of the year.
Yes, if we think about the back half of the year, we really it really leans towards what Sam was talking about around seasonality. We have two two peak seasons for the platform.
<unk> in Q4.
And generally our wholesale business is kind of.
<unk> up in front of that in terms of getting the shelves stocked up so Q1, youll see generally an outsized wholesale in Q3 as they ramp up for the higher seasons of Q2 and Q4, we saw that for sure and you're seeing that reflected in our Q1 results as retailers were preparing for the Q2 ramp.
So.
It stands to be told right I mean, we're going to see those results shining through right now as we go through Q2 early signs are positive we have already seen reorders from from some of those retailers, we just mentioned <unk>.
For Q2, and those are very positive signs as we think about rolling through to Q3 and getting orders for Q4 season.
I'd just also add that there is a lot of excitement that we're feeling from our retail partners around the product innovation. So.
One of the one of the benefits of this innovation is not only our ability to go directly to our consumers our websites, but also to go through our retailers with fresh new offerings.
And we'll talk probably more about this as we get later into the call, but we're all hearing about the shift that consumers are making towards experiences over products.
Experiences and services are really experiencing something special now and our platform is just full of brands.
Deliver experiences our whole brand mantra is good moment, Boston memory for putting smiles on People's faces. So we think that we've got a suite of products that are going to be attractive to retailers, who are trying to attract people and to give them experiences over things.
Got it thank you very much.
Let me add one more comment there thanks, Chris.
On the wholesale.
Channel. So just historically if you look at 2020 wholesale was 8% of our total revenue last year 2021 wholesale was about 12%.
And so as you consider this year I would just keep that track record in mind in terms of growth in wholesale we've talked before about shooting for that 20% wholesale 80% DTC mix.
And again good momentum this year on that path. So.
Just a couple of data points to.
To think about as you as you update your models.
Thank you.
Thank you.
If you'd like to ask a question star one on your kind of thing key pipe.
Please note, we will be limiting yourself to one question and one follow up question only.
Our next question comes from Robby <unk> of Bank of America. Robert Your line is now open.
Thanks, Good morning, Hey, I wanted to follow up on Chris's questions can you maybe talk a little bit more about the I think in the press release, you said leaning into wholesale.
So was is the leaning into wholesale more solar stove or is it very.
Brought across brands or maybe some color on how we see <unk>.
Is doing at wholesale.
In the brands and the other question is on maybe for Sam.
Could you.
Sort of talk about is there any change in the gross margin assumption for the balance of the year.
Related to mix of wholesale versus DTC or anything like that to that we should think about.
And getting getting to your EBITDA guidance.
Great perfect.
And part of that and then have Sam take the second part.
So on the on the wholesale mix in terms of solar cell versus chubby versus even or an IL. It was consistent so we saw.
Really good demand and growth with wholesale across the platform with with all of the brands all the way down through an Io. It wasn't just a solo thing and I think thats.
Just.
A representative of.
What really the entire digital direct to consumer space.
Feeling in Q1 in terms of.
That lapping of traffic trends in conversion rates. So it's been consistent and we're really happy with the demand that we're seeing come through in the desire that these wholesalers and retailers are having to.
Take on the product and get it on their shelves for their consumers.
And to your second question Robbie on gross margin so just in general.
In terms of modeling gross margin, so John mentioned freight costs higher than last year as we expected I would say in line with our expectation between contracted and <unk>.
Spot rates.
And then to your point, where where there could be some movement is in the mix with wholesale as of right now there is.
There is no no change other than.
Just optimism obviously with a good.
Good good Q1 and seeing.
Retail flow through like John mentioned, going very well and repeat orders coming back and so feeling very good about wholesale still very early to Chris's point.
So we don't have anything baked in just yet, but definitely keeping an eye on that mix.
Yes.
I would just kind of.
Maybe Rob just one thing on that that I, just pointed out but just as a reminder, because of the timing of when retail wholesale business comes through and our seasonality of our overall business. It's important that we get through Q2.
Before we really understand if theres any major significant shifts.
D to C to wholesale because Q1 is going to be outsize, just by nature of them stocking up shelf and so once we get through Q2.
We'll have better information to be able to come back to you and say yes.
The mix shift is right in line with kind of what we would have expected in terms of the.
The growing retail wholesale business or its outsized or.
On par or whatever it is.
Got it.
Thanks Connor.
Great. Thanks, guys. Thank you.
Thanks Robyn.
Our next question comes from Sharon Zackfia from William Blair Sharon Your line is now open.
Yeah, Hey, guys. Good morning. This is Alex on for Sharon Thanks for taking our questions.
So just kind of a follow up on the on the consumer trends you guys are seeing with macroeconomic headwinds and such can you maybe talk to any of the qualitative trends youre seeing within the business and then are you seeing.
Any typical consumers that would maybe purchase of higher priced products starting to trade down to a more of a middle or lower price product essentially have you seen any price sensitivity on the higher priced items more than maybe normally would.
I mean I.
I think the softness in Q1 was representative of consumer sentiment overall and just.
The softening that happened as a result of customers or consumers.
Being pitched at the pump and pension in the grocery store at restaurants, and so forth.
And just overall kind of this wait and see with inflation.
I would say on an overall basis.
Where we feel like we are differentiated is health.
The brands and as a platform is back to this notion that.
Rather than being discretionary purchases of products.
We really are a platform of.
<unk> that lead to experiences and so.
Rather than being an expensive or a high priced product and becomes kind of a low low price vacation. If you will so if somebody is making a decision between spending two or $3000.
Going on a vacation or spending four to $500.
On a on a silicone fire pit as an example of something that they can sit around every weekend and get those same joyful memories and smiles on their faces that they would.
Going on a vacation to a theme park or whatnot.
Just a great place for customers to go to invest in those experiences. So I think if anything we are feeling and sensing this shift towards experiences for sure and I would say that the.
The widening of the of the consumer that's out there investing in experience is broad and it.
It's allowing us to continue to have a relevancy.
Where discretionary spending does definitely feel like it.
As seeing it seeing headwinds because of all of these macroeconomic.
Factors that are going on.
Okay great.
Helpful. And then just kind of a follow up on that.
Consumer trends.
Are you are you seeing sort of.
As you referenced the typical seasonality in terms of more of the summer facing brands, our consumers still wanting to.
Get outside and use the outdoors as much as an activity kind of as much as they had in the prior two years with the pandemic.
Yes, the seasonality ramp has been real.
Remember Q2, EBIT for solar so even though Q4 is so outsized.
In terms of seasonality.
Still a large quarter for the <unk> brand, but yes.
We've seen momentum coming out of Q1 into Q2 in terms of that seasonal ramp.
In line with our historical what we've seen historically.
Awesome. Thanks, guys. That's helpful I'll pass it on.
Thank you.
Our next question comes from our Commander Natura Walnut from Credit Suisse. Your line is now open.
Hey, guys good morning.
First question on.
Supply kind of a combination of it sounds like you feel very comfortable going into the second quarter, but maybe thinking a little further out for the full year, which is how comfortable do you feel in terms of.
Where you are on supply and I believe.
Continue to replenish supplies you.
As you continue rolling out.
Yes, it feels it feels like we're in a really solid position Sam talked about this just a few minutes ago in terms of.
Leaning into ramping up supply both both because of.
Ongoing.
Even.
The kind of the current COVID-19 resurgence in China.
The port congestion and other supply chain challenges.
And then our expectation that freight costs, we're going to go up and that's paying off.
Dividends for us because we were in such a strong position for the back half of the year and obviously central.
You just talked about the seasonality in being.
Roughly roughly over a third in the front half of the year and roughly under two thirds in the back half of the year in terms of overall mix for the year.
And so it's we're in a good spot and we our suppliers are.
They're navigating well.
The challenges that they're facing over there.
We have good relationships with our freight carriers were getting the space that we need we're not seeing.
Our old containers.
And albeit higher than last year. The freight the freight rates that are coming through on a blended basis are in line with what we expected and what we budgeted for which is which is in large part one of the reasons, we're able to reiterate our guidance.
Okay, great. So it wasn't really a QQ comment it sounds like you feel okay for the for the year.
On the EBIT on the EBITDA range.
It's quite a tight range for business got some seasonal yours with two quarters left.
Given all the volatility and the things that you've talked about.
Where are the layers of cushion in case.
Things do get worse.
Worse than even where we are now I know theyre not great from a cost perspective.
We don't really know which direction they're going.
Maybe if you could just talk about where the flex might be in the P&L.
Yes, Sam do you want to kick off here and I can layer on.
Yes, I think.
The it's always in our variable model and the fact that we have relatively low fixed cost.
And as long as we drive our efficient marketing and again Thats part of the investment continued investment we have strong referral rates strong repeat purchase rates.
That's what makes our business economical.
In addition to low customer acquisition cost and so as we continue to operate and drive that model and keep our fixed costs low.
We can sustain that quad.
Quality EBITDA margin.
I would say as well that we are making investments like we've talked about international innovation data.
Those we believe it.
Ken we are already seeing that they're paying off well, particularly on the international.
The innovation side as we are able to come up with what we think are going to be very impactful new products.
And then.
On the data side, obviously, you haven't haven't been able to leverage that to its full strength, yet, but just from the the expansion going from one brand to brand there's significant dollars there that again.
Affectively free growth.
And so it's really leveraging leveraging the model to maximize profitability is where we'll be able to do that.
Okay, great. Thank you guys.
Thanks for coming out.
As a reminder, if you'd like to ask a question.
One on your telephone keypad.
Our next question comes from Randy <unk> from Jefferies.
Your line is now open.
Yes, Thanks, a lot I guess John for you when you talk the commentary around wholesale seems to imply that.
The wholesale channel is very stable the sell through rates are pretty even.
Relative to the direct side, our DTC side, which is more way more volatile.
Can you expand upon what is.
In your view is driving that massive amount of disconnecting volatility in direct versus.
Versus wholesale and then.
Following up on that.
The volatility comments are you seeing the business or the brands equally volatile across beef and solo or is one of the brands.
More volatile in demand versus another.
Yes.
So just I'll just quickly answer the last one and then go back to the first one because the last one below that faster, it's pretty equal in terms of volatility on digital direct to consumer across the platform. So nothing outsized in terms of volatility for <unk> versus <unk> versus ordered aisle.
In terms of the question around.
What is my sentiment or feeling around what's driving the disconnect between wholesale demand and direct to consumer demand.
Again. This is my my personal feelings on it in my personal take on it just being close to it and looking at it every day I think there is in part.
This just is this real element of people or just.
The last two years being pent up and worried about leaving their home and going shopping and walk in the aisles and touching and feeling products in person.
Outside of the grocery store, maybe there was just not a lot of in store and we are seeing a resurgence towards customers just wanting to get out and walk the aisles and I definitely think that that having a major impact right now.
In terms of what we're seeing like I said, we expected outsized in Q1 as retailers, where we're going to be stocking the shelves for Q2 because of our seasonal mix. So in part this was expected and Thats why its really important for us to get through Q2 before we say, yes, it's really like outsized even though.
Term because.
If Q2 does what it's done historically and may not even still outsized for what happened in Q1.
I will just add that I think personally.
Dairy Covid I think that there was a camp of people that felt like.
We were on this path towards 50, 60, 70% or something of overall shopping happening online coming out of Covid that people wouldn't go back to the stores.
To the degree that they have and I think that we're seeing that customers still like the brick and mortar experience and I think.
That's relevant and important it doesn't mean that direct to consumers going away that was already massive growth happening in direct to consumer prior to the pandemic, but I don't think it was the acceleration that some people thought in terms of.
It just being this crazy takeover in brick and mortar with dine.
And so that's.
That's something that we're seeing and again as it's a good balance I think it's healthy.
Like in.
And a lot of ways, what we're seeing between the wholesale to brick and mortar wholesale brick and mortar to the to the direct to consumer digital direct to consumer balance and Thats why we still are continuing to say, we think an 80 20 split between those two channels over time is still the right place for us to target as an overall platform.
One.
Helpful. And then the last question is going back to the questions around the EBITDA dollar.
Guidance for the year.
Can you give us some perspective on how that what that embeds from a.
Promotional posture perspective does it incorporate a higher promotion ality at all and then same question on the EBITDA Guide what does it embed from a cost to acquire customers perspective, just wanted to understand how youre thinking about that in terms of laying out that EBITDA dollar guide. Thanks.
Thanks, guys.
Yes, Thanks Randy.
We think about marketing spend in particular, we've talked about this a lot we talked about on our prior calls, but we have a promotional strategy across the platform and in large part our promotional strategy is really unchanged from what it's been historical we're constantly iterating and testing and then making adjustments to campaigns.
We're looking at contribution margin. So there's a lot of factors that go into contribution margin, but the two big drivers are how promotional argue which is ultimately how how easy is it for you to attract traffic and convert that traffic to a sale and marketing spend and so.
In theory, there is correlation between.
Youre more promotional that generally marketing spend becomes more efficient. If you are less promotional than you spend more to acquire the customer and finding that sweet spot, where you're you are generating the maximum output in terms of contribution margin is really the name of the game and we have a world class team in house.
Executing in that every day, so as we think about this year. Our strategy. We will continue to do what it has been which is to maximize contribution margin and profits.
I think hopefully for all of you that are on the call and for anyone out there to be able in this environment to still be talking about generating and delivering a 20% ish.
EBITDA margin on the year in an environment like this is pretty remarkable we're really really proud of what our team is able to accomplish pass through this model through our direct to consumer model and I think that that's what you can come to expect from US as we continue to execute throughout the year is to maximize profits by watching contribution margin.
And then moving our promotions up and down along with our marketing spend to find that sweet spot to deliver maximum profit.
Great. Thank you.
Okay.
Thank you.
Final question for today comes from Peter Keith of Piper Sandler Pizza. Your line is now open.
Hey, this is Matt <unk> on for Peter Thanks for taking our question.
The first one from us.
Can you kind of talking on that.
Discounting policy can you maybe walk us through your map pricing policies with your wholesale partners.
Alright.
Retailers are allowed to do more discounting or is there certain windows and when they are allowed to do more discounting.
That's my first one.
Yes.
Yes.
That's the best way to think about it. So we do have a map policy with all of our retailers.
We do map holidays.
Like many other brands do with retailers, sometimes in line with when we're running promotions.
But more often than not in certain seasons, where the retailer has specific.
Cell sales going on so one of the ones that comes to mind for me that we participated in historically with us with Rei who runs.
Once once a year spring sale.
Really important for their brand and for their members that are going into the co op. So.
We will definitely partner with our retailers and provide them the ability to.
For some reprieve from map during certain windows of time throughout the year, so that they can they can.
Have a differentiated offering in the store.
Yeah.
Yes that makes sense.
And then the last one for me can.
Can you give us an update on the competitive backdrop for solo and we've seen some big box retailers kind of started selling knock off.
Similar stainless steels.
Has the knock off competition stepped up and has there been any patent violation.
<unk>.
There have been some there have been some violations for sure and we we've seen.
Step up is probably a fair word in terms of knockouts coming grew.
And we're actively protecting our IP, which we feel we should be in.
And so there is some some lives.
Some live cases, right now that we're working on with.
With some knockoffs that have come up that are specifically in contrast to.
Our IP.
Perfect. Thanks, guys.
Thank you we have no further questions lets say that concludes today's conference call. Thank you for joining you may now disconnect.
Okay.
Yeah.
Yes.